Income Declaration Scheme

Income Declaration Scheme | Features, How to Declare Undisclosed Income

Income Declaration Scheme: The Income Declaration Scheme presents an opportunity to people who have not paid total taxes in the past to come forth and declare the undisclosed income and pay a surtax, tax, and penalty calculating in all to 45% of such undisclosed income announced. The benefit of the scheme is that once an assessed states income under this, she will receive immunity from fine or prosecution procedures under the Income-tax Act, 1961, and the Wealth-tax Act, 1957, correlated to such income.

Finance minister Arun Jaitley had proclaimed the Income Disclosure Scheme 2016 in the Union Budget in February 2016 to empower people to publish their unaccounted income and wealth. This is the first scheme of its kind after the voluntary disclosure of the income scheme of 1997 by the government of India. This scheme’s first initiation was on the 1st of June, and it culminated on 30th September in the year 2016. This article demonstrates Income Declaration Scheme in detail, what is Income Declaration Scheme, its features and How to Declare undisclosed income.

Eligibility for Making A Declaration

All ‘people’, such as individuals, HUFs, companies, firms, the association of persons (AOP) etc., are eligible to make a disclosure under the scheme. A taxpayer committed in prosecution or procedure under the income-tax Act or any other Act cannot adopt for disclosure under this scheme. The scheme allows taxing evaders to reveal their unaccounted income or assets and come out clean by paying the relevant tax and penalty, adding 45% of the undisclosed income. This will assist them in regularising their wealth. The Income declaration form is also for those unknowingly paying tax on specific earnings or assets bought from the income. For example, one could have missed paying capital gains tax on the money received from the sale of inherited property.

Scope of Income Declaration Scheme

The Income Declaration Scheme can be made regarding any undisclosed income or investment in any asset representing undisclosed income linking to any Financial Year up to 2015-16. The declaration scheme does not complete if the notice has been issued under section 142(1)1143(2)1148/ 153A/153C of I-T Act, 1961. The COFEPOSA detainees, persons, are apprised under the Special Courts Act (1992), prosecution cases under the NDPS Act, the prevention of corruption, and certain offences under the Indian Penal Code. To use the IDS, ensure that the undisclosed income is appropriately valued and taxes are calculated correctly because once paid, these taxes and penalties won’t be refunded.

Non-declaration Effect under Income Declaration Scheme

The value of any income and undisclosed assets obtained out of such payment in any year upto FY 2015-16, which is not disclosed under the scheme, will be brought to tax in the year in which the Department issues notice and all
consequences, including, interest, penalty & prosecution under I-T Act will follow accordingly.

Dates of Income Declaration Scheme

The scheme was effective from 1st June 2016, and the declarations were registered up to 30th September 2016. Around 25 per cent tax payment was required to be performed by 30th November, then by 31st March, and the prevailing 50 per cent by 30th September next year, adjusting earlier rule of surcharge, tax, and penalty to be paid 30th November 2016.

Benefits of Income Disclosure

  • Under the Income-tax Act and Wealth-tax Act, in respect of declaration, there is immunity from prosecution.
  • No Wealth Tax on assets if disclosed.
  • In respect of declaration, there is no investigation or query under Income-tax Act and Wealth-tax Act.
  • Reprieve from the Benami transaction act if the benamidar transfers the assets to the actual owner by the cutoff date.
  • Immunity is executed only for the undisclosed income disclosed under the scheme and not for the payment that persists to be disclosed.

IDS Application Forms

The online disclosure of undisclosed income through the Income-tax website has a series of forms that need to be filled. The following steps illustrate the form procedure. Form-1 is the declaration form and can be submitted online by employing the digital signature of the declarant or using an electronic verification code. The application form can be obtained on the Income Tax online portal and can be downloaded in XML format, filled up, then scanned and uploaded on the portal. Once the form is uploaded, the IT department will issue Form 2 as a confirmation receipt of Form 1. The Form 2, when received, can be used by the declarant to pay income tax at a rate of 45% for the undisclosed income. For doing so, the declarant needs to use Challan No. 286. Form 2 is followed by Form 3 for the inference of tax payment, penalty and surcharge payment. After payment, the proof of payment must be provided by uploading Form 3. One needs to attach the tax payment confirmation further. Finally, Form 4 serves as the certification of declaration that is granted by Pr. CIT/CIT, 15 days after the payment intimation.

Income Details under Income Declaration Scheme.

The declarant is expected to present necessary details about the year(s) for which the statement was made. One can easily put the amount where the undisclosed income is quickly obtainable. The tax paid is based on the declared value of the assets. Rule 3 of IDS which prescribed the method of determining Fair Market Value (FMV) of assets, includes shares & securities, bullion, jewellery or precious stone, paintings, drawings, sculptures or any work of art, archaeological collections, Immovable property, interest in a partnership firm or any other assets. Therefore, if the income earned is Rs.10 lakh in 2010, where no tax was paid, and invested in a piece of art or in a plot of land whose market value has now valued to Rs.1 crore, the tax should be paid on the current fair market value of Rs.1 crore. Such tax, charged at 45%, would amount to Rs.45 lakh, far higher than the income that you actually earned.

Outcomes of Income Declaration Scheme

It is an excellent opportunity for those who have intentionally or unintentionally not disclosed or have under-disclosed their income; one would assume many to use it. The income declaration scheme has not yet taken off significantly. In the past, many projects have been far more engaging to tax evaders, who could get away by simply taking in foreign remittances, or investing in precisely defined bonds at a nominal interest rate, or refunding a nominal rate of tax on the undisclosed income. Declaration without a certified valuer’s assistance is effectively not permitted under the scheme. Many tax evaders are also not entirely persuaded that they would not welcome greater scrutiny of their tax returns in the future.

Conclusion on Income Declaration Scheme

There are numerous situations where people do not disclose their income accurately or under-report their income in order to avoid income tax. With a view of having these people report their payments and remit taxes, the income tax department conducts raids and inspects if a person’s accounts are suspicious. To make it easier for people to report their income, the government of India brought the Income declaration scheme, 2016, as an alternative for people who have undisclosed income. The scheme allows the citizen to reveal the undeclared income and pay the applicable taxes. This article has tried to give a succinct understanding of the whole income disclosure process.


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